Futures Curve by Accutic

Treasury Update.

Today is 1^st notice day for holders of December treasury futures. Last trading day for 10yr. futures is December 21^st. Open interest in Dec. 10yr. futures is around 250K after Fridays session, Mar. now has about 1.1 mln. contracts open. Focus will now be in Mar futures trading and the options exercisable against that contract, namely the Jan. expiring on the 24^th of December, the Feb. expiring on the 21^st of January and the Mar. expiring on the 19^th of Feb.

Most the action Friday on the floor involved Jan. 10yr. call options quite a bit of the activity involved exiting long positions in Jan. 119 calls and rolling them up to Jan. 121 calls. There was also some more profit taking on long Jan. 121.5 calls. Feb. and Mar. option trading was very quiet for both puts and calls.

Currently there has been no definitive resolution to the situation involving the debts of Dubai world. Reports I am hearing this a.m. seem to indicate that the Governments and financial entities in the area will provide liquidity for some of the banks with exposure but not to the entity known as Dubai world. The latest spin in terms of what the markets are worried about now and going forward is the difference between an implied guarantee and an actual guarantee, sort of like the GSE issue in this country.

Prices of March 10yr. futures are trading 11925 are off about 3 ticks from Fridays settlement.

One reason why an $80 billion debt suspension can cause so much worldwide panic is the amplification provided by Credit default swaps. I would imagine there are 10 times or more of these instruments clicking along as we speak registering continuing risk cost of underlying instruments. Apparently these instruments are hedged using some more traditional products such as treasury futures and options and plain vanilla swap contracts and various forms of performance margin such as cash and treasury securities. Another and more important reason is that Dubai World may have to unload real estate holdings at distressed prices which would have a large impact on the entire real estate market given the marquee names of the properties involved through out the world.

Markets will have broader participation today vs. the holiday shortened session on Friday, so of course there will be more later as the day unfolds.

Trading update.

From the trading floor, this morning in 10yr. treasury options dealer who was long Jan. 121.5 calls continues to sell them out, so far around 5K sold through BCG @ .18, .17 and .15 with Mar. futures trading from  11929 to 11922. In Wednesdays session a dealer sold about 6K @ .06 and .05. Also to day paper sold 5K of the Jan. 119/121 call spreads @ .61 and .62 with Mar. 10’s trading 11927.5 to 31. Delta’d against mar. futures 11930 a dealer bought 3K of the Jan. 119.5 calls @ 1.07, and delta’d same level dealer bought 3K of the Jan. 118 – 119.5 combo’s (buying the call) @ .54. Near the open Jan. 119 puts were bought 2K times @ .31 and .32 delta’d against futures 11928

Earlier in an email alert I showed a dealer buying 5’s and selling bonds on a FOB trade. Now we have J.P. Morgan selling 5’s and buying bonds see below.

.
MORGAN BANK SELLING NOW

 

-800 116-30.2  FVH

 

+312  122-06  USH

 

 

-1300 116-31.2  FVH

 

+508  122-09  USH
 

 

-400 117-00.2  FVH

 

+160  122-14  USH

 

Flows mixed in ED options one of the bigger trades today was a buyer of 10K EOF0 9750/9800 put spreads for 3.5 ticks. Those are mid curve options that are vs. the Mar. 10 futures which currently are trading around 9960. Regular expiration Mar. 9962.5/9975 call spread was bought 5-7K times @ 6.5 ticks.

 

All in all markets seem fairly well behaved with flows showing 2 way bets so far. Prices may eventually fill in gap on 10yr. charts form 11911 to current low of 11920 vs. the Mar. future. Latest updates on Dubai situation point out that US banks do not have much exposure to that situation. Stay tuned.

Treasury update.

With the ratings of sovereign debt now coming into question highlighted by the suspension of debt payments by Dubai World another round of panic is setting in. Treasury futures have traded over $24 bln. in notional value already this morning and prices are up nearly one full point. It will be very critical for G-7 nations, the IMF and any other credible forces to send a calming message to the markets quickly. Clearly the US holiday yesterday has exacerbated the situation, or perhaps the resumption of business activity in the US will help make things worse.

There did not seem to be any signs of this type of panic buying in Wednesday’s trading session. Prices were moving higher in treasuries but more in line with year end related buying, and not a flight to quality. Indeed some of the large bond funds were still selling call premium vs. the Mar. future. Those futures now trading 120’01.5 and these guys are short close to 30K of the 120 call and 30K of the 121 strike.

 Backing down to the more mundane, current open interest on the treasury contracts shows Mar. now the more liquid contract, and will be the lead month officially on Monday, see below.

TY     

 

DEC    449,079        - 329,957

 

MAR    976,704       + 396,603

 

FV      

 

DEC     288,391       - 160,484

MAR    633,077       + 219,067

 

 

3YR

 

DEC          2,544        - 774

MAR         1,002        + 639       

 

 

TU

 

DEC    259,727       - 323,723

MAR    779,648      + 285,732

JUN         6,958       + 6

 

DEC (10)  1,363       UNCH


US

 

DEC    221,196       - 118,299

 

MAR   640,570       + 173,172

 

JUN             75       UNCH

 

SEP             1        +  1

Treasury trading update.

Treasuries remain firm as year end buying continues. I would imagine that as traders book profits in other markets they park the funds in treasuries till their bonuses get calculated. There is a seasonal trend for the treasuries to start performing well around the 1^st week of Nov till after thanksgiving often scoring 2 points in price action.

Large fund manager taking advantage of the uptick to sell more Mar.  10yr. 120 and 121 calls. Open interest is over 20K in each of thes strikes, mostly from their shorting activity. Yesterday Jan. 121.5 calls traded heavily over 24K and open interes rose 18K on preliminary reports to around 22K. Floor sources felt some of the buying was a hedge for the player selling the Mar. calls. Today one of the houses handling that business sold 3.5K of the Jan. 121.5 calls @ 5 ticks, I think they paid 4 ticks yesterday.
Other trades from today listed below.

Filled Orders
House	Buy/Sell	Quantity	Strike	Price	Futures
000	S	3,500	TYF121.5c	.05	11828/28.5
000	S	5,000	TYH120c	.53	11825.5/27
000	S	5,000	TYH121c	.33	11825.5/26
560	B/S	2,000	TYF120c	28.5	^11828.5
000	S	1,000	TYF119strd.	1.38	^11825
5yr.
560	B	8,000	FVG114.5/116.5  combo's	.40 - .42 call over	11620-21.5
714	B	5.000	FVH115/118 comb0	.07 call over	^11616.5

 

Treasury option players update.

Strong two way trading in Treasury options yesterday. Initially we highlighted some of the bearish bets going on, but if you look at the list below you will see some large Jan. Call buyers and large bullish combo bets.

 

092	Bot	3000	H-16p/+21c Combo	5	11820-21
287	Bot	500	F20/21+/23c Fly	10	11817-17+
287	Bot	500	F16/17p	10	11817+-18
287	Bot	500	H16/18p	40
287	Bot	2000	F21+c	4	11815+-16
355	Bot	5000	F16p	8	11818-18+
374	Bot	500	H16/17+p	27
374	Bot	1000	H14p	17-18	11815-19+
444	Bot	5000	F21+c	5	^H11823/^H11824
560	Bot	5000	H-14p/+21c Combo	12	^H11816-16+
560	Bot	500	H17p/20c Stgl	136	11820-20+
617	Bot	1000	F21c	6	^H11816
660	Bot	7500	F121+c	5	11817+-18+
660	Bot	1000	H14p	18	11817+-18+
660	Bot	1000	F20c	16	11816-16+
660	Bot	2000	H14p	17	11820+-21
685	Bot	500	H+/F-16+p Cal	33	11817+-18
690	Bot	7000	F121+c	4-5	11815-15+
709	Bot	4000	F20c	15-17	11815-21
714	Bot	1000	F21+c	4	11814+-15
714	Bot	4500	H+16+p/-20+c Combo	8	^H11816
714	Bot	1000	H17p	50	^H11820
714	Bot	2500	H10/12+p 1x2	1	11825-25+
715	Bot	2000	F21/22c 1x2	2	11817-17+
355	Sold	5000	F+17/-18p 1x2	Even	11815-16
370	Sold	3000	F20c	17	11821-21+
560	Sold	2000	F21+c	4	11818-18+
660	Sold	10000	H121c	30-31	11815+-17
684	Sold	500	H-12/+14p 1x2	Even	^Z12002
684	Sold	500	H18+c	251	^H11818
685	Sold	1000	G18+ Stdl	135	^H11817
685	Sold	500	F18 Stdl	135	11814+-15
685	Sold	500	F-18+/-19/+20c Tree	1	11818+-19
714	Sold	1000	H17p	52	11814-17
Local	Sold	500	H120c	49	^H11816
Local	Trade	800	F15+/17+p	20	^H11816+

Ten year option trading update.

In the 10yr. sector flows were on the bearish side yesterday and mixed to bearish today. In the diagram I highlight continued selling of Mar. calls. There was a large buyer of Jan. 121.5 calls today, 10K were taken at 4 and 5 ticks with mar. futures trading around 11815 area. Floor sources indicate this could be a hedge against the short Mar. call position.

This by no means is the only action going on. Selling option premium is expensive and certainly risky. Chart formations do look bearish over all if you look at long term view, so having some kind of core short position is prudent, even with the current sideways to up sloping price actions

 

 

 

 

 

 

 

 

 

 

 

Some additional flows from yesterdays market

 

006	Bot	1000	F+16/-15p 1x2	1	11919+-20
197	Bot	3500	F16p	10	11919+-20+
287	Bot	500	F121c	5	11913-13+
355	Bot	5000	F+16+/18p vs F19+c	19	11906+-07+
355	Bot	10000	F15+/17p 1x2	10	11907+-08
355	Bot	2000	F19/20/21c Fly	8	11907+-08
560	Bot	3000	H12c	44
660	Bot	1000	G19c	44	^H117&28
660	Bot	1000	F+16+/18p vs F19+c	9	^H11731
684	Bot	1000	H18 Stdl	261	11909-10+
370	Sold	3000	H120c	44	11914-14+
370	Sold	10000	H120c	44	11914-16
374	Sold	500	H14p	24-5
560	Sold	2000	F15+/17p 1x2	10	11908-09
684	Sold	1000	F120c	12	11914-15
Local	Trade	500	G17p/20c Combo	14	11918-18+

Treasury Calendar Spread Update.

Calendar spread activity will probably dominate floor activity this holiday shortened week.  Spreads have been narrowing over all as longs tend to dominate activity early in the roll to avoid any delivery risk. I will look for spreads to continue to narrow this week as we get closer to 1^st notice day. Dec. contracts still have most the liquidity so option traders will initially hedge using the Dec. contracts and then quickly roll into the Mar.

Current picture as of Fridays close listed below.

Commodity	Settlement	Open interest	Change
TYZ	119'18	1,174,07-	dn. 109,225
TYH	118'08.5	160,467	up 70,615
Differential
points	1'09.5
32nds	41.5/32nds
Commodity	Settlement	Open interest	Change
FVZ	117'16.2	757,365	dn. 43,856
FVH	116'07	111,727	up 18,918
Differential
points	1'09.2
32nds	41.2/32nds
Commodity	Settlement	Open interest	Change
TUZ	109'06.2	891,114	dn,56,598
TUH	108'21	186,071	up 60,293
Differential
points
32nds	17,2/32nds
Commodity	Settlement	Open interest	Change
USZ	120'28	689,739	dn. 29,220
USH	120'08	100,331	up 38,135
Differential
points
32nds	20

Treasury Trading Update.

If you scan the players list below, you will see some bullish plays in 2 and 5 yr. options for pretty good size. Once you get to the 10yr. listing you will note more activity on puts for the bigger flows. J.P. Morgan has continued to load up on OTM puts taking another 5K of the 112’s on Friday. They are also pretty big in the 113 puts. These flows reflect the current steep yield curve as money has been pouring into the 2yr. and in sector pushing yields to credit crisis lows in that end.

 

From Geocities.

5yr.	2yr.
116	Bot	5000	G17.5/18.5c	11
355	Bot	750	Two yr. H107.5/108p	4
355	Bot	3000	H13.5	.5
560	Bot	5000	Z117c	35
197	Sold	2000	Two yr. H109c	11-11.5
355	Sold	5000	Two yr. Z109/G1089.5c Diag	12-12.5
714	Sold	6000	Two yr. H108.75/109/109.25c Tree	3
10yr.
197	Bot	1000	Z120c	5	11926+-27+
350	Bot	5000	F+16.5/18p vs F-19.5c	6	^Z11918
350	Bot	500	G16+p/19+c Stgl	114	11917+-18
370	Bot	500	F16/17p	13	11916+-17
660	Bot	5000	H12p	11-12	11918-21
660	Bot	1000	G19c	58	^H11813
714	Bot	1000	Z20c	1	11922-23
020	Sold	1000	Z20/21c	1	11922-22+
287	Sold	3000	Z19+c	9-10	11917+-19+
287	Sold	1000	Z19+/20/20+c Fly	4	11916+-17+
350	Sold	2000	Z120c	5-6	11926+-27+
350	Sold	3000	Z20c	1	11922-23
370	Sold	4000	F20c	14	^H11806+
444	Sold	500	Z20c	2	11924+-25
660	Sold	1000	Z19+/20/20+c Fly	14	11924+-25
660	Sold	3500	Z19/19+/20c Fly	18	11921-22
684	Sold	1000	Z20c	4-6	11927-29
30yr.
House	Buy/Sell	Quantity	Strike	Price	Futures
116	Bot	2000	G25/26c	11	12029-30
197	Bot	5000	G105p	4	12017-8
560	Bot	500	F129c	2	12025-6
660	Bot	1000	Z21c	1-2	12019-20

Treasury Trading Update.

Trading in the calendar spreads picked up yesterday. A summary of the activity is listed below. A few comments: There were some sizable all or none orders executed on the 5yr. spread with Merrill selling and J.P. Morgan buying. On the 2yr. calendar spread one dealer was offering 4K @ 17.7 early in the session “all or none” but did not trade. Subsequently the 2yr. calendar spread traded good size at 17.5, that spread has narrowed from 18.  Later in the session a dealer showed 8,825 @ 17.7 all or none. The 10yr. roll had a 42.7 bid for 2K all or none early in the session but did not trade. There have been plenty of all or none quotes and interest in most the spreads as the floor still facilitates those types of orders more manageably than the screen.

Trading summary.

Commodity	Settlement	Open interest	Change
TYZ	119'14	1,292,864	dn. 9,891
TYH	118'03	68,502	up 15,802
Differential
points	1'11
32nds	43/32nds
Flows
House	B/S	Qty.	Differential
355	B	650	43
350	B	1,500	42.7
Commodity	Settlement	Open interest	Change
FVZ	117'10	829,318	dn. 23,592
FVH	116/00	40,470	up 26,575
Differential
points	1'10
32nds	42/32nds
Flows
House	B/S	Qty.	Differential
560	S	17,000	42.2
660	B	12,000	42.2
350	S	1,000	42.2
197	S	1,000	42.2
660	B	2,500	42.2
617	B	5,000	42.2
350	S	2,000	42.2
Commodity	Settlement	Open interest	Change
TUZ	109'05	969,234	dn. 48,632
TUH	108'19.5	104,515	up34,858
Differential
points
32nds	17.5/32nds
Flows
House	B/S	Qty.	Differential
370	S	4,000	17.5
560	S	2,000	17.5
617	B	2,000	17.5
Commodity	Settlement	Open interest	Change
USZ	120'16	743,408	dn10,114
USH	119/26	35,950	up 6,707
Differential
points
32nds	22
Flows
House	B/S	Qty.	Differential
N/A

Treasury Calendar spread update.

First notice day is 11/30/09 for treasury futures. After that date shorts have the option of making delivery and therefore longs in the market that do not want to risk taking delivery will either roll the position or liquidate. Obviously shorts in the market that want to avoid the delivery process and maintain a short position will be rolling as well. As Dec. options expire this week, hedges vs. the Jan. Feb. and Mar. series will initially trade vs. the more liquid Dec. futures contract and then roll to Mar., until that contract becomes the more liquid.

Current status of the Calendar Spreads

TY    

DEC   1,305,930        + 8,382 Dec. futures settled 11924

MAR       52,750        + 10,116 Mar. futures settled 11812.5    spread differential 1’11.5 or 43.5/32nds.

At on point a player bid 43/32nds for 5k all or none, order was eventually cancled

FV      

DEC      853,789        + 3,814 Dec. futures settled 11712.7

MAR        13,895       + 4,282 Mar. futures settled 11603 spread differential 1’09.7 or 41.7/32nds.

Goldman was a buyer of 550 @ 41.7 yesterday.

TU

DEC   1,019,038        - 26,284 Dec. futures settled 10904.2

MAR       69,930        + 20,352 Mar futures settled 10818.2    spread differential 18/32nds

The roll traded actively on the floor yesterday, UBS was a buyer of several thousand in increments of 440 and 880 lots, not sure why, paying 18/32nds. Mann also a buyer selling mainly screen based yesterday.

US

DEC    756,536        + 4,771 Dec. futures settled 121’02

MAR     29,243        + 3276  Mar. futures settled 12012   spread differential 22/32nds.